A Village Savings and Loan Association (VSLA) is a group of people who collectively support a structured process for saving money and offering loans at a local-level. It is a community-based initiative whereby the members of the group democratically prepare their own constitution for how the VSLA will be managed and the rules for members to abide by. VSLAs provide a simple and accountable system for savings and loans for communities who do not have ready access to formal financial services such as banks or microfinance institutions.
VSLAs meet weekly and each member must buy at least one share per week. The price of each share is agreed by the group in the constitution and, in most groups, they limit the number of shares an individual can buy each week to five. Each member of the VSLA has a Passbook in which a record is kept of how many shares they buy each week. Savings are kept in a secure despite box which is held in the community. The box will have three different padlocks, with different people keeping the key for each. A fourth person will keep the deposit box, meaning that four people need to come together to open the box. This makes the box secure because an individual is not able to steal from it.
As indicated in the name, VSLAs also offer loans to group members. The loans are taken from the collective savings which the group have deposited, and the loan recipient is given a set amount of time in which to repay the loan. Members who take loans must also pay a small amount of interest on the loan, depending on how much they borrow. The interest accrued by the VSLA during the course of one year is shared out among members.
A VSLA will meet weekly for a year before the savings are shared out to the members. Interest accrued from loans is shared out to all members according to their level of contribution to the total amount saved by the group – the more shares you buy during the year, the higher the proportion of the total interest you receive. After the share-out of savings and interest, the process will begin again for another year, and the group may decide to change the price of each share for the coming year.
VSLAs have been well received since being introduced in northern Ghana. They are a popular model because it is community-based, so any interest paid on loans goes back into the community instead of into the pockets of a bank, and it is a simple model which illiterate people living in poverty can engage in. Even those who are living in poverty are able to be members of a VSLA because they are required to contribute only a small sum each week. However, after the year’s cycle, each person receives their savings and they have a significant sum. For an individual living in poverty, receiving a lump-sum of at least 100 cedi enables them to invest in their families, households, and livelihoods.
Membership of a VSLA is empowering for women. Each week they take ownership of their finances when they buy shares, the group supports one another through a sense of unity, members can respond to unexpected events by taking a loan (for example, to pay healthcare costs), and their savings received at the share out enables investment in the wellbeing and future of their household.